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Hi all,

I've recently become the beneficary of a trust that I receive funds from yearly that exceed my regular yearly gross income x 2 which
has me trying to figure out a nice safe place to put the income that will grow.

I've got no debt other than a fixed rate low interest home loan with about 8 years left on it (house payment less than $500 a month).

I started an traditional IRA a few years ago and have about $28,000 in current asset values.

My accountant told me that it didn't make good financial sense for me to put any more yearly contribuations into my IRA because I am very likely to be in a higher tax bracket in the years to come and that it would be betteer for me to pay taxes on my income now instead of paying taxes on the money later when I withdrew it from the IRA account.

I'm nearly 52 so it's not very long between now and the 59-1/2 age where I could start drawing out of the IRA without penalty.


Should I go ahead and cash the IRA out and take the 10% penalty and pay the taxes on the roughly $28,000 in value now or just manage the stocks (buying and selling) and let it grow (hopefully) and perhaps be in a higher bracket in 8 years and pay even more in taxes on it?

Thanks,
Jim
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No, that would not be a good idea. Your IRA assets are fine where they are. Tax deferred growth and no mandatory distributions until 70.5

Depending on the trust income, you'd probably be best served to contribute the max to your Roth IRA each year (assuming you have earned at least that amount), and leave your TIRA as is

BruceM
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"Should I go ahead and cash the IRA out and take the 10% penalty and pay the taxes on the roughly $28,000 in value now or just manage the stocks (buying and selling) and let it grow (hopefully) and perhaps be in a higher bracket in 8 years and pay even more in taxes on it?

Thanks,
Jim "

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Why even consider paying a penalty or taxes if you do not need the
funds?
If you see a benefit, you might convert the IRA to a Roth - but
even that seems an excessive thing to do.

Howie52
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OK - how long is this trust income going to last? For a couple of year? A decade or more? Your lifetime?

Next - is the trust income taxable to you? Do you have to pay tax on the amount you receive from the trust? Sometimes you do - sometimes you pay tax on only part of the distribution - sometimes it's all tax-free. So which is it for you?

Depending on your answers, it might make a lot of sense to put money into a traditional IRA. Or it might make sense to put money into a Roth instead.

In any case, it makes no sense at all to withdraw money OUT of your existing IRA.

--Peter
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Also, it does NOT sound like your accountant recommends taking the money out of the TIRA. Only that putting $ into it may not be the best choice. (i.e. leave the current funds there).

You can 'estimate' your income and the potential taxes, and make an educated choice based on that info.

You may also 'roll' the TIRA into a Roth IRA, moving a small enough amount each year over a period of several years to NOT cause an increase in your tax bracket - you will have to pay the taxes when the monies are moved. Rolling tax-deferred monies into a RIRA does not generate a 'penalty' as long as the taxes are paid as due.

As has been mentioned, leaving the TIRA alone, and putting future post tax income/savings into a Roth IRA is also an option.

You might also spend some time talking with a TAX lawyer about methods to reduce the tax burden, both now and in the future. You can put savings into tax free bonds, and other types of tax advantaged investments. Long term capital gains, in a taxable investment account, are currently 15%...

Congratulations on your good fortune :-)
ralph
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Thanks for the wonderful advice folks. I will just leave the IRA alone and manage what stocks I have in it now with a mind of growing the asset value of the portfolio and worry about making withdrawals later closer to that 70.5 mark if the good Lord lets me live that long that is!
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...I will just leave the IRA alone and manage what stocks I have in it now with a mind of growing the asset value of the portfolio ....


Becausw of the tax advantages people often find that it makes sense to hold their taxable bonds in their retirment accounts and hold their stocks in the taxable accounts.


Greg
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"Becausw (sic) of the tax advantages people often find that it makes sense to hold their taxable bonds in their retirment (sic) accounts and hold their stocks in the taxable accounts.


Greg"


What he ^ said.

-drip
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